Wednesday, May 20, 2009

Keith Hennessey has a fascinating post which summarizes the reasoning behind Obama's decision to accelerate the Bush administration's 35 mpg mandate for car and truck fuel economy. (HT: Glenn Reynolds) Here are some of the things that struck me:

According to the calculations of the National Highway Traffic Safety Administration (NHTSA) this proposal will:

1) Have no net benefit to society in terms of costs and benefits.

2) Result in the loss of almost 50,000 auto manufacturing jobs in the U.S. over the next 5 years.

3) Have a "trivial effect" on global climate change: by the end of this century the proposal would a) reduce atmospheric CO2 concentration by 0.2%, b) reduce global mean surface temperatures by 0.007º C., and c) reduce sea-level rise by 0.6 mm.

I would add that the projected benefits of the NHTSA analysis are so small as to fall well within the range of modelling error. And that's not to mention the fact that no one has yet developed a climate change model that can produced reliable results anyway.

I would also note that if automakers are successful in producing such fuel-efficient cars, then U.S. oil consumption will likely decline, and that could well lead to lower oil prices, cheaper gasoline, greater oil consumption in countries that do not impose such standards, and more miles driven in the U.S. At the very least, reduced gasoline consumption in the U.S. would free up oil to be burned in other countries with less efficient cars and trucks. As a result, the future impact on global climate could actually be zero or even the opposite of what is intended.

Why are we letting some egomaniac force such dramatic change on our economy, our lifestyles, and our freedoms, if there is no demonstrated benefit to anyone? Where is the outrage???

15 comments:

we will probably be riding around in electric golf carts by 2016 anyway due to a)Obama's thuggery against the oil companiesb)Mexico may be out of the oil exporting business by then as Cantarrel's output continues to drop off a cliff.c)Chavez is doing his best to destroy PDVSA.d) China and India's growing thirst for oil.

My outrage has no specific place to vent. Who do I complain to? The press? My congressman?

In part, because of the explosion of the internet and the flood of words and opinions available through it, I think that our individual voices are being diluted. Used to be that a letter to a congressman would actually be read - now it just generate an auto-reply.

Here is an example of why those tiny boxes on wheels are going to be necessary in the coming years. Obama actually believes we are producing too much oil, and it "..is detrimental to long-term energy security…”

I have outrage to spare, but - like others - I feel relatively powerless as our democracy has become so unresponsive to citizens true wishes by virtue of all the imcumbancy protection mechanisms erected over the years. You in CA at least got an opportunity to send an unambiguous message the other day. In NY, we have no such ability. Our choices are 1) take it, 2) leave.

Anyway, I remain relatively optimistic that many of these destructive policies will run into the brick wall of reality. Companies are not hiring and will not hire meaningfully for years unless they get some relief. CAPEX budgets are going overseas almost without exception. Unless they have success in final round bargaining with Obama and the Dems, they will go into Plan B mode. Several corps will move domicile. Others will shut down US ops (visibly for their Congressmen to see). Small businesses organized as LLCs will (magically) report reduced profits that limit their tax liability. And after all that, corps will simply pass on the cost of increased regulation. People will notice and they will call an end to all this. I have talked to numerous young doctors who now tell aspiring students NOT to go into medicine due to impending government takeover of healthcare. Investors are still simply stunned at waht went on with Chrysler and they are steering so far clear of anything where the government can sting them again. Capital starvation will kill off a large number of jobs. And of course yields on Treasuries look like they are going up, adn the USD down. The brick wall is not too far off. It'll be painful when we hit it, but even the supposedly ignorant US voter knows when they've slammed into a brick wall and tries to not do it again.

Fear over what has happened in the last 9 months has caused retraction and submission in our population. The majority has abdicated both personal and democratic responsibility and handed authority over to the President and his minions.

We are witnessing the slow and generally undetected power creep of a dictator, not a Socialist. He is making decisions that are not based upon what is best for society, but what he considers best based on executing ego driven, ill informed ideas. There is no philosophy that can be traced to ignoring the law and threatening CEOs and others into silence and compliance. Remember what was said to the bankers: "Gentlemen, I am the only thing between you and the pitchforks." This was followed by intimidating the Chrysler debt holders into shutting up while the UAW was paid off with control of the company.

If you would like to express outrage, tell your family, neighbors and representatives how you feel. We still have freedom of speech. It is important that people realize he says "I don't want to have to..." before he takes the next outrageous step that has no precedent or legal grounding.

GM crashed and burned the electric car even though the owners were willing to buy them outright. And why are cr@ppy car companies like GM and Chrysler spending hundreds of millions of dollars lobbying to fight CA fuel standards?

Watch the documentary "Who Killed the Electric Car"

http://www.sonyclassics.com/whokilledtheelectriccar/

This country needs to pull its head out of its rear end. We should use brazil as our model. Energy independence helps domestic security. You have to start somewehre so stop whingeing about it.

We shold be more worried abut the $12T floated to save the banks than a 35mpg standard that will eventually help secure our country.

This just in...Neptune Orient Lines will move US HQ from Oakland to Phoenix. Not the first and not the last. We'll see corps leave US altogether. I talked to a nat gas CEO the other day - their strategy is to build a fortress balance sheet and invest abroad if at all and wait "one party rule" out.

At the end of the day, Americans will tolerate only so much economic decline. We are not the Venezuelans. This too shall pass. Not saying it'll be fun, but it will pass.

I wouldn't have any real problem with the 35 mpg standard if Obama was also addressing the supply issue. As it is, people will have to end up buying high mileage cars anyway because the price of gas is going to go through the roof again unless we undertake a serious commitment to drilling for oil. Obama is going in the exact opposite direction.

Totally off the subject but I have been meaning to ask your opinion and/or any general commentary you would consider providing regarding Municipal Bonds?Thank you. PS: Sedona is a very nice place to visit. I live in Phoenix but do not get up there as often as I should. Hope you enjoyed the time there.

As I've mentioned at times in other posts, I'm not an expert in muni bonds. The muni bond market is very different from the regular bond market, mainly because liquidity is awful, and information is hard to come by. Since you can't easily trade muni bonds (it's mostly a buy and hold market), it is very inefficient. Trading is very costly. The market is very fragmented. Who in the world knows anything about the government of Rancho Cucamonga and what they are likely to do?

There are times when munis are obviously cheap relative to Treasuries, and that can present opportunities to taxable investors. One way to take advantage of this, at times, is through the use of muni futures (e.g., buy muni futures, sell Treasury futures), but not everyone can do that.

In short, it's not an area that active bond managers spend much time in, so that is why I don't know much about it.

If you really want to play with munis, perhaps your best option would be to use ETFs, but I know very little about them.